The Green Jobs Myth

One thing that should be clear is that when the government “invests” in anything it doesn’t do so like a private investor.  Private investors want to make money, so they look at a company’s profit potential, financials, competitors, consumer demand, and the like to make a decision.  They don’t look, necessarily, if the company has the right amount of diversity, has made contributions to the right political parties, uses union workers, or if it is just an attractive and aspirational idea that just has that little problem of being entirely unprofitable.

Government investing of any kind has always been different.  For starters, there is great potential for fraud, since the government’s investment decisions often involve inscrutable criteria that are not easily verified by outsiders.  Further, even without fraud, there are various noneconomic criteria:  the wages must be set at the prevailing level, the company cannot be involved in unsavory economic activity, and non-economic goals like saving the environment often prevail over making a profit. Unsurprisingly, even with subsidies, such companies often do not profit.

This is the problem with all government subsidies:  they defy the “efficient capital markets” principle that if something is worth doing, the market already would have invested in it.  Why would the government see a great investment opportunity that the market missed?  After all, if it is so good, the investors stand to make a great deal of money.  It’s true, there are government goods–such as defense hardware–that may not be created without government subsidies on the research side, but those goods should be distinguished from green jobs and green goods, which are supposed to benefit and be used by ordinary people.

From an economics perspective, it certainly may be the case that we as a nation benefit from more energy efficiency and energy independence, and, further, that there is a collective action problem that market prices alone do not reflect (as the harm of excessive energy use is disbursed and otherwise not captured in the market price in the manner of a negative externality).  But if that is the case, the best way to incentivize green jobs is not to pick and choose companies that make particular goods–as Obama diastrously did in throwing money at the now bankrupt Solyandra–but by taxing the use of energy.   $4 and $5 a gallon gasoline likely would put a stop to the SUVs and trucks and get people to change their habits, painful as that shift would be.  

This intervention, of course, would be very unpopular:  it would hurt consumers, it would slow down short term economic growth, and the timeline of companies’ investing and creating new “green” products would be very long.   A “sin tax” on energy, however, unlike government favoritism, has the benefit of keeping the innovation, product development, and competition in the private sector.

It’s quite obvious that Obama has the old “planned economy” faith in his ability to out-think the private market.  Recall his arrogant announcement to GM and Chrysler that they can’t just build more SUVs, even though those are profitable and the highly subsidized Volt has sold only a few hundred models.  Other than the fact that Obama likes these electric cars and has thrown money at companies to make them, he knows nothing about the car business or private business in general.  He has no experience in the private sector, in fact.  And his arrogant and ignorant pronouncements on everything from cars to solar power to health care show why the business community has so little confidence in him.  Is it any wonder that we have 9% unemployment or that Obama’s showcase green jobs ompany is now bankrupt?  The Solyandra failure, in fact, is a great metaphor for his presidency:  some lofty ideas that involve big government, coupled with terrible execution, bad results, and a lack of responsibility or reevaluation from the source.

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